04 May 2012

Are Lawyers Slackers?

At a nearby table we saw three young people with plaid shirts and floppy hair.
For all we know, they may have been plotting the next generation’s Twitter, but
[Edward] Conard felt sure they were merely lounging on the sidelines. “What are they
doing, sitting here, having a coffee at 2:30?” he asked. “I’m sure those guys
are college-educated.” Conard, who occasionally flashed a mean streak during our
talks, started calling the group “art-history majors,” his derisive term for
pretty much anyone who was lucky enough to be born with the talent and
opportunity to join the risk-taking, innovation-hunting mechanism but who chose
instead a less competitive life. In Conard’s mind, this includes, surprisingly,
people like lawyers, who opt for stable professions that don’t maximize their
wealth-creating potential. He said the only way to persuade these “art-history
majors” to join the fiercely competitive economic mechanism is to tempt them
with extraordinary payoffs.

I sincerely doubt that Conard has the psychology of entrepreneurship right. Even if extraordinary payoffs are one way to encourage entrepreneurship, it is hardly the only or the most efficient way to do so.

Also, somebody has to prevent risk taking entrepreneurs from crossing the line over into being foolhardy and stupid, and this is what lawyers do. The risk would be much greater if it weren't for the lawyers (and investment bankers and accountants and other "staff" professionals) advising entrepreneurs.

Conard is an apologist for the status quo and former partner of Mitt Romney at Bain Capital. He argues that the super rich are indispensable to the well being of the entire society.

One reason to be skeptical of this view is that people are pretty insensitive to the amount of the payoff it will take to motivate them to extend themselves on the high end. For a well educated, upper middle class trio in a coffee shop, working entry level professional jobs, a reward of $2,000,000 each and a reward of $20,000,000 each aren't that different in their capacity to provide motivation. The research shows that winner take all incentives aren't as effective at producing aggregate levels of effort as more modest but more widely attainable rewards.

One of the better counterexamples is government. The very highest levels of public service, as cabinet officers, generals, astronauts, politicians, and city managers may provide enough fame, power and prestige to make a sacrifice of earnings potential compared to a private sector job with similar responsibilities tolerable. But, a lot of smart, talented, capable people happily and competently hold down jobs year after year without serious complaint as nearly invisible senior civil servants, managing massive government resources of people and money, and bearing great responsibility, for a tiny fraction of the pay of comparable private sector employees (the overall deal is pretty comparable to the private sector at the mid-level and tends to be more generous than the private sector at the low end). A Colonel, or CIA agent, or senior executive service employee in a Washington D.C. agency headquarters lives a comfortable enough life but brings home a surprisingly modest paycheck.

People are also risk averse for good reason. Failing to be rich is survivable for one's entire life. Failing to have enough resources to provide yourself and your family with food, shelter, clothing, health care and other necessities of life, even briefly, is not.

Notably, many of the most innovative people in our society in both the public sector and the private sector - our most productive professors, our most prolific inventors in the corporate world, the people who write the all of the changes to the laws and regulations that govern our lives, the physician at some of our most prestigious and innovative medical centers like Mayo Clinic - work for comfortable upper middle class salaries, rather than being organized economically in their own lives in a way that affords them even an opportunity to make a big payoff, ceding those opportunities to large institutions in exchange for reliable moderate comfort. People who are insecure in their own personal lives are much less prone to take risks even if there is a real chance that the gamble could produce immense payoffs.